Interest Rates and Universal Life Insurance

Universal life insurance policies provide a flexible insurance solution for those seeking the protection of death benefits. The insured can flex the policy's premiums and benefits during the life of the policy while the policy creates a residual cash value. This allows one to adjust the nature of their life insurance so that it remains consistent with their actual needs.

Whole life insurance policies offer insured parties a guaranteed interest rate on the cash value of the policy. Universal life policies do this as well. For instance, a universal life policy may guarantee a minimum interest rate on the account of X percent. That percentage will be paid regardless of what happens to the insurance companies actual earnings. However, if the insurance company is able to invest premiums in a way that allows them to exceed the X percent rate of growth, they credit the policy of the insured at the higher rate.

This seems like an absolutely winning situation for holders of universal life policies. After all, they are guaranteed a minimum rate of return on the policy's cash value and may actually earn in excess of that rate, allowing them to pay less in premiums for the same level of life insurance coverage.

This feature of universal life insurance policies has contributed significantly to their popularity. However, despite the minimum guaranteed rate of return, interest rate levels can still impact universal life insurance policies detrimentally, making it necessary for consumers to consider all possibilities when evaluating universal products.

Although the insured is guaranteed a minimum rate of increase to the policy's cash value, this perk is somewhat meaningless if an insurance company's assumptions regarding interest rate behavior are proven to be wrong. All universal life policies are written with assumptions regarding the nature of interest rates in mind. If the company is unable to invest at a level producing the anticipated return, premium costs are forced upward to compensate for the shortfall.

This can result in policyholders being forced into premiums they may not be able to afford. This phenomenon is occurring today for those who bought universal life insurance when interest rates were in double digits. Insurance companies based their universal life insurance policies on the assumption that higher interest rates would continue for some time. This has not been the case, and many insured parties have found themselves paying higher and higher premiums in order to maintain their life insurance. For some, these premium increases are unmanageable, forcing them to cancel their policies completely.

Obviously, the risk of interest rate fluctuations makes universal life insurance less predictable than whole life insurance coverage. However, this unpredictability is not necessarily a reason to avoid universal life. If one is cognizant of the risk of premium price upswing if earnings fail to meet predictions and is prepared to pay the increased premiums in such situations, universal life remains very effective.

This is especially true in light of the fact that the alternative would be to simply buy a whole life insurance policy, which would likely require higher premiums payments right away and with no opportunity for relief at any point during the life of the policy.

Universal life advocates argue that the possibility for cheaper premiums when investment out performs or meets projections makes it a more sensible alternative than agreeing to higher premium payments through the entirety of a policy (whole life).

Whole life advocates maintain that the unpredictability of the markets and of interest rates makes universal life insurance products too unpredictable.

In the final analysis, universal life insurance products seem like a winning solution for those who understand and are able to handle fluctuations in the required premium. If one necessitates complete predictability and is able to overlook the possibility of a cheaper premium over the course of the policy, they may decide that a whole life package makes more sense for them than universal life insurance.

Evan C. Davis works in Medicare customer service and is the webmaster and owner of Easy Insurance Finder. Find out about universal life insurance and online universal life quotes at http://www.easy-insurance-finder.com.

Universal Life Insurance - A Brief Explanation Of Universal Life Insurance
Universal life insurance is a policy in which part of the premiums are used to buy life insurance and part are used to invest...

Universal Life Insurance Rates How to Comparison Shop
Universal life insurance policies were the life insurance industrys first answer to the proponents of buy term and invest the...

Universal Life Insurance Quotes
Have you ever wondered what will happen to your loved ones when you die, especially if you are the family breadwinner? This i...

Universal Life Insurance
Life is so uncertain and so many things can happen -- even the things you least expect, such as a sudden death. You could be...

Life Insurance Rates - These Policies Offer The Best Life Insurance Rates
Life insurance rates are different for each type of policy. There are basically two different types of life insurance that mo...

Choosing Between Term and Universal Life Insurance
Surely anyone who has been in the market to purchase a life insurance policy has run into the confusing array of plans availa...

Cheap Life Insurance Quote With The Right Type Of Insurance
There are four different types of life insurance. Each with a different price range. Here's a brief description of each sta...

Universal Term Life Insurance Guide 101
Universal term life insurance is a combo of term life insurance and universal life insurance. It is a kind of term life insur...

How to Compare Life Insurance to Get the Best Rate
Most people spend too much for their life insurance. Why? Because they didn't take the time to compare rates. Here's how to c...

Is a Life Insurance Comparison Really Necessary?
When you want to purchase a life insurance policy, you really do need to do a proper life insurance comparison. This is to en...

The Four Chief Types of Life Insurance
Life insurance, at its core, is a means to protect the financial security of one's survivors. It is generally thought of as a...

What Are the Differences Between Term Life Insurance and Whole Life Insurance?
There are two main types of life insurance that make up most if not all of the policies that you can acquire. These two types...

Life Insurance And Annuities - What If You Had To Choose Between The Two?
If one had to choose between life insurance and annuities, which would it be? A decision like this would be the equivalent of...

Types of Life Insurance Available
Life insurance is considered an important cornerstone in any personal or familys financial planning. For most families and i...

Knowing The Pros And Cons Of Finding The Best Whole Life Insurance
Once you have finally decided to take that big step and invest in your first life insurance policy you are left with one more...

A Comparison of Annuities and Certificates of Deposit (CDs)
Similarities:Fixed Annuities and CDs are low risk investments with guaranteed rate of returns based on interest rates, both a...

Life Insurance - Pick the Right Type for Yourself, Your Family, and Your Business
You purchase either permanent or term life insurance. Permanent life insurance will cover you for your whole life with premiu...

Mortgage and Life Insurance
If you are currently pending a mortgage, you will need life insurance to help prepare you down the road when illness or death...

Term Life Insurance Rates
A term life insurance covers a person for a substantial period of life, such as ten, twenty or thirty years. A person has to ...

Online Life Insurance Quotes - Important Factors To Consider When You Compare And Shop Online
The advent of the internet has made is easy to shop, compare and obtain life insurance quotes online. With just a few clicks ...